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Strong quarter. Positive outlook.

Zee Entertainment Enterprises Ltd, a subsidiary of Essel Group, is an Indian mass media company with interests in television, print, films, mobile content and internet, and allied businesses.

* Q2FY22 revenue rose 14.9% YoY to Rs. 1,979cr. Zee Entertainment Enterprises Limited reported 48.6% YoY increase in PAT in Q2FY22 to reach Rs. 284cr.

* EBITDA margin expanded 150bps YoY to 19.7% on higher margin product mix and lower costs.

* Zee is expected to fare much better in Q3FY22 on the back of opening of theatres, strong performances of new launches and expected new launches and the proposed merger. We reiterate our rating on the stock as BUY with a revised target price of Rs. 389 based on 24.0x FY23E adj. EPS.

Growing viewership driving revenues

Net Sales witnessed 14.9% YoY growth to Rs. 1,979cr in Q2FY22, due to steady upsurge in viewership by 70bps YoY to 17.7% through launch of +30 shows on PAN India basis. Zee Entertainment Enterprises Limited reported 24.1% YoY increase in EBITDA in Q2FY22 to reach Rs. 389cr, whereas EBITDA margin came in at 19.7% (+150bps YoY), helped by lower costs and improved product mix-led revenue growth. D&A costs reduced by 8.2% YoY to Rs. 60cr on account of reduction of plant and machinery. The cash and treasury investments of the company were Rs. 162cr, post-payment of equity dividend of Rs. 24cr, indicating a strong liquidity position.

Key concall highlights

* Company proposed merger between Zee and Sony Pictures Networks, India subject to approval received from the board. The due diligence process has already been commenced and is in steady progress.

* The TRAI has allowed the broadcasters to revise and publish the RIOs, with implementation extended to April 1,2022.

* Global MAUs and DAUs as on September 30 stands at 93.2mn (+31% QoQ) and 9.3mn (16.2% QoQ) respectively with average watch time per viewer per month of 186 minutes.

* Market share now increased to 17.7% (up 70bps) due to launch of new shows and new channels that additionally contribute about 1.2% to the total network share.

Businesses will soon bounce back to pre-COVID levels

The reopening of malls, theaters, and other economic, and leisure activities, coupled with the festival season gives hopes for gradual recovery in revenues from Zee studios segments. Revenues from advertisement business and other sales and services grew 20.7% YoY to Rs. 1,089cr and 414.8% YoY to Rs. 101cr but subscription segment revenues declined 1.5% YoY to Rs. 789cr due to opening of offices.

Valuation

Zee is expected to fare much better in Q3FY22 with continued revenue growth momentum owing to opening of theatres, strong performances from new launches and expected new launches and the proposed merger. This will aid the company in achieving synergies via cost reduction and development of better-quality products. We expect earnings to grow at healthy ~30% CAGR over FY21-23E. Hence we reiterate our rating on the stock as BUY with a revised target price of Rs. 389 based on 24.0x FY23E adj. EPS.

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